National Food Service Management Institute

The University of Mississippi

Procurement and Inventory ManagementProcurement and Inventory Management

Objective 1

Identify persons in the food distribution chain and know how to communicate with all players in the chain

FOOD DISTRIBUTION CHAINfrom Grower to School

Growers

Manufacturers

Distributors

End users

Broker/sales rep

Distributor buying group

School/district purchasing co-op

UNIT 2 - Chapter 3 - 1

Types of Distributors

• Full or broadline

• Specialty wholesalers

• Special breed distributors – restaurant chains

• Supermarket or wholesale clubs

Current Customer Base

40%

10%

10%

10% 10% 10%

4%

4%

2%

RestaurantsConvenience Stores Hotels/LodgingOther CommercialHealth CareSchool FoodserviceColleges/UniversitiesCorrectional FacilitiesOther Non-commercial

Restaurants

Other Non-commercial

Correctional Facilities

Colleges/Universities

School Foodservice Health Care

Other Commercial

Hotels/Lodging

Convenience Stores

Today…

We are in a Seller’s Market.

To Sell Themselves, Schools Can Emphasize . . .

• No change in ownership

• No bankruptcy

• Fair pricing process

• Early week delivery

• No deliveries on major holidays

• School district profile

Objective 2

Describe the role of ethics in procurement

Unethical Behavior

• Providing cost information to competitor PRIOR to supplier selection

• Sharing supplier’s proprietary information with competitor

• Accepting gifts or cash • Accepting free trips or entertainment

Ethics Rule of Thumb:

“If you question an action, then you should not proceed.”

Objective 3

Identify federal, state, and local procurement regulations, policies, and procedures governing all school nutrition program purchases

Procurement Guidelines

What are they?• Federal Standards• State Standards• Local Standards

Which do you use?• Most restrictive

Federal Regulations

• 7 CFR Section 3016• http://www.access.gpo.gov/cgi-bin/

cfrassemble.cgi• $100,000–Use formal purchase method OR

state requirement if less• No geographic preference allowed• Vendor who writes specs cannot offer price• Cost plus a percentage of cost NOT allowed

Federal Regulations

• Only responsible contractors• Open and free competition• Written selection procedures• Staff may NOT accept cash or gifts• Domestic commodities

Food and Drug Administration

Food, Drug, and Cosmetic Act• Controls labeling of food products• Prohibits

misbranded food products adulterated food products

• Establishes standards of identity, quality, and fill• Nutrition Labeling & Education Act - 1990

USDA Grade Standards

USDA Grade A

USDA Grade B

USDA Grade C

U.S.D.A.Poultry and Meat Inspections

• Poultry Products Inspection Act/Wholesome Poultry Products Act

Prevents misbranded or adulterated poultry products

• Meat Inspection Act

Established meat inspection program

U.S.D.A. – Inspection Marks

Processed Meat

Raw Poultry

Raw Meat

Know Manufacturer’s Code Numberand Establishment Number

U.S. Dept. of Commerce Fish and Wildlife Act

Est. 036

PUFI Seal

Additional Laws

• FDA - Public Health Service Act

Model Food Code

• U.S. Customs Service - Tariff Act

Labeling of imported foods – “Product of (country)”

• U.S. Dept of Justice - Antitrust Laws

Sherman, Clayton, Robinson-Patman, and Federal Trade Commission Acts

Open and free competition

USDA Food Safety and Inspection Service: Names on Labels

• Ham - must be at least 20.5% protein in lean portion as described in 9 CFR 319.104. Added water is permitted

• Ham - water added: The product is at least 17.0% protein with 10% added solution.

• Ham with natural juices: The product is at least 18.5% protein.

• Ham Salad: Product must contain at least 35% cooked ham.

Objective 4

Identify various types of acceptable purchasing systems

Four Purchasing Methods

• RFQ: Small purchase procedure

• IFB: Competitive sealed bids

• RFP: Request for proposals

• Noncompetitive negotiation

Sections of a Formal Bid

1. Transmittal & signature pages

2. Standard terms & conditions

3. Special instructions

4. Product list & descriptions

5. Billing address & delivery locations

6. Potential bidders

Line Item Award

Product NamePotential Vendor A

Potential Vendor B

Potential Vendor C

Peaches $20.36 low $22.94 $23.41

Pears $22.49 $23.95 $22.46 low

Sugar $19.06 $18.75 low $21.45

Bottom Line Award

Product Name

Est.Units

Unit Price

Vendor A Ext.

Total

Unit Price

Vendor B Ext.Total

Unit Price

Vendor C Ext.Total

Peaches 25 cs $20.19 $504.75 $22.02 $550.50 $21.50 $537.50

Pears 10 cs $20.94 $209.40 $20.48 $204.80 $21.50 $215.00

Sugar 15 bg $15.98 $239.70 $16.63 $249.45 $14.10 $211.50

Bottom line total

$953.85Low

$1004.75 $964.00

Grouping Categories

For open and free competition,

group by specialists

Bottom Line Categories

Milk

Equipment

Frozen, dry & refrigerated

Paper

Produce

Bread

Prioritize:

•Money Spent

• Impact on meal quality

Objective 5

Describe how to develop and use specifications, descriptions, and approved brands for assembling a food bid

Specifications and Descriptions

Specifications: complicated and lengthy•May be a couple of pages for one product, labor intensive

Descriptions: short and measurable•Limited to those characteristics that are essential for communication with the supplier such as CN label •Can be identified by the receiver and measured at the point of receipt

Product Classification

One ingredient: Distributor's choice

One major ingredient: Private label

Multiple ingredients (highly processed): Manufacturer’s brand

Distributor’s Choice

NO Brand Restrictions

sugar

salt

PRIVATE LABELS AND QUALITY

Third = Standard Substandard Quality (70-80) (below 70)

Second = Extra Standard Quality Standard

(80-90) (70-80)

First = Extra Fancy ChoiceQuality Fancy

(90-100) (80-90)

VEGETABLES FRUITS

1. High-volume products or products with quality problems

2. Identify on final bid

Manufacturer Code # Establishment #

Maker 42104 Est. # 17842

Manufacturer’s Brand

Sample of Item Classification on Draft Bid

Item Description Item Classification Bid Unit

Est. Units

1516 Chicken, Pat; BR’D; white meat; NO VPP; w/dried egg; CN label verifies 2oz. M/MA; 3 oz

Approved brands only svg 215,639

2200 Peaches, Cling U.S. Choice; packed in packed in juice; 6/#10

Private Label cs 500

6340 Salt, Iodized; 24/26 oz Distributor’s choice cs 25

Brand Approval

Brand orApprovedEqual/No

Brands

Pre-ApprovedBrands

Only

TWO APPROVAL SYSTEMS

Steps: Brand Name or Approved Equal

1. Write product descriptions.

2. Issue final bid.

3. Open bids.

4. Evaluate bids.

5. Award bids.Brand decision made here.

Problems

• Decision of comparable quality made during bid evaluations

• Bidder allowed to determine “equal”

Brand Names or Approved Equal

Approved Brands Only

1. Write product descriptions & develop draft bid.

2. Classify products as Distributor’s Choice Private Label Manufacturer’s Brand

3. Hold individual pre-bid conferences.

Individual Pre-Bid Conference

• Explain classification system

• Explain brand pre-approval

• Request nutritional data & copy of labels of brands they want screened

• Discuss test schedule

• Order product to test

Approved Brands Only

4. Screen brands Paper screen Appearance screen Taste screen

5. Notify potential bidders of screening results6. Accept alternative to brands that failed

Brand or Approved Equal

7. Screen second group of brands8. Issue final draft of product/brand list9. Conduct final pre-bid conference

Brand decisions already made.

10. Issue bid11. Open all bids in a public meeting12. Evaluate final bids13. Award bids to the successful bidder

Testing Product: Phase I

• Purpose: choose which formula will be bid

• Products: from SAME manufacturer• Consider:

Nutritional impact Price Taste

Major Components of Chicken Patties or Nuggets

Meat block:a. Breast, white or breast w/rib b. Chicken , natural proportionc. Dark meat

Egg: Dried whole egg Vegetable protein product (VPP):

a. Flourb. Concentratec. Isolate

Testing Product: Phase II

• Purpose: approve brands of the SAME formula

• Products: from DIFFERENT manufacturers• Consider:

Nutritional comparability Appearance Taste

Taste Test Rules

• Product delivered in full-case, sealed container

• Students rate product• Part of regular meal• Prepared in typical equipment• Test only one product per day• Allow NO company representatives• Do NOT disclose brand name

Final Bid

Item Description Item Classification Bid Unit

Est. Units

1516 Chicken Nuggets; Br’d; white meat; NO VPP;

w/dried egg; CN label verifies 2 oz M/MA; 3 oz min. weight

Whip-O-Will Farms 60150 Est # P-246 Variety 2543 Est # P-2543;Chickly Foods 10821 Est # P-399

svg 215,639

2200 Peaches, Cling U.S. Choice; packed in juice; 6/#10

Private Label cs 500

6340 Salt, Iodized; 24/26 oz Distributor’s choice cs 25

Request for Proposal (RFP)

• Allows evaluation of variables other than cost

• Cost should exceed 50% of total points

RFP Evaluation

Evaluator name

CRITERIAMAX. PTS ALLOWED

SCORE AWARDED

1. Bottom Line Figure 55

2. Service 20

3. Available technical support 10

4. Availability of parts 10

5. History of reliability 5

TOTAL 100

RFP Budget Evaluation

Maximum: 55 points

Two responses: $4,000 and $5,000

$4,000 = 55 points

$4,000 $5,000 = 80%

80% of 55 points = 44 points

$5,000 = 44 points

Direct to Manufacturer

• Sealed bids

• Line item for most products

• Firm price with petition for escalation/de-escalation

• Requires a bid for distribution

Objective 6

Identify the basic types of pricing mechanisms

Pricing Mechanisms

1. Firm for duration of contract

2. Market–Escalation/Deescalation

3. Cost + Fixed Fee

Fee may not increase duration of contract including extension

Monitored based on Market

Objective 7

Describe how to develop a critical path plan for procurement

To Develop a Critical Path

• Determine delivery time

• Complete time needed for each task

• Start with delivery date & work back to beginning date

• Minimum of 36 weeks required

Evaluation/Re-evaluation

Objective 8

State the basics of receiving and inventory management

Receiving is . . .

. . . the critical link in procurement and food quality

Personnel Training

• Inspecting deliveries using district receiving procedures

• Taking food temperatures• Reading food labels• Following district clerical

procedures• Reporting product quality problems

Storage Guidelines

• Use FIFO• Store in original packaging• Separate raw from cooked or ready-to-eat foods• Store min. of 6” off floor and away from wall• Keep areas clean and dry• Inspect and treat regularly for pests• Use clean equipment to transport• Store in appropriate area.

Inventory and Cost Control

• Inventory is a major component of cost control

• JIT (Just-in-Time) deliveries

• Limit days food supplies are in inventory

• Excess inventory = $ tied up

Seven-Day Inventory

Formula:

_____Annual $ for food______Number of serving days in year

X 7

( )

Standard Stock

1. Determine number of cases neededa. Previous year’s invoicesb. Delivery frequency

2. Change with seasonal foods3. Add 50% to base amount4. Develop pre-printed order form

Standard Stock Order Form

Product Product #Current

InventoryStanding

OrderAdjusted

OrderIndividual

catsup 100445 2 cases 10 cases

Individual mustard 100569 ½ case 3 cases

Individual mayonnaise 100720 ½ case 1 case

Dill pickle 208965 1 - 5 gallon 1 - 5 gallon

8 cases

none

Cooperatives

33,000

4,000

6,000

23,000